FX Survey 2021. Assessment of exchange rate developments - Corporate Banking - Credit Suisse
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Corporate Banking FX Survey 2021. Assessment of exchange rate developments.
Contents
03
Editorial
04
Interview with Thomas Gottstein, CEO of Credit Suisse Group
06
Credit Suisse FX Survey 2021
12
Rosy outlook for Swiss exports
15
Credit Suisse forecasts
18
FX market - reflecting on 2020
20
Planning and flexibility: Golden rules of currency hedging
22
Currency hedging strategies for every market environment
26
Interview with Dr. Andréa M. Maechler, member of the Governing
Board of the Swiss National Bank
30
Givaudan SA
32
Thermoplan AG
34
ArrowMetals and Trading
36
1e pension plans
38
Successful currency management
2
Editorial
Dear reader
In spring of this year, the outbreak of the COVID-19 pandemic led to a global economic
downturn and the world collectively held its breath. The summer months showed the
opposite picture: Social life and consumption were up again, and the economy let out a sigh
of relief. Key to this rapid recovery was the supply of liquidity and capital to companies.
However, with the advent of the second wave, there was also a new downturn in economic
output. At the same time, geopolitical risks have increased.
In combination with the ongoing low-interest rate environment, turbulence from these risks
has caused uncertainty in the past few months, particularly on the foreign exchange market.
For Swiss companies that deal with different currencies as part of their business activities,
hedging currency risks is more important than ever. Only then can long-term planning take
place, even in a volatile environment. A substantial proportion of Swiss companies already
rely on targeted currency hedging. In this context, the focus is mainly on the euro, followed
by the US dollar as the second-most important foreign currency for our corporate clients.
The euro zone remains the most important trading partner for Swiss companies. This is
confirmed by the results of our survey for this year regarding the expectations for economic
and exchange rate developments in 2021.
However, the coronavirus pandemic has certainly taught us one thing: Unusual situations
require a high degree of flexibility. This doesn’t just apply to the hedging of currency risks.
Those companies that were able to rapidly adjust their business models to the new environ-
ment were thus able to benefit. Being innovative and flexible – that also applies to us as a
bank. With our my Solutions platform, we offer companies the option of conducting foreign
exchange business online. And despite increasing digitalization, personal advice remains
important. With our currency centers in Basel, Geneva, Lugano, St. Gallen, and Zurich, we
remain regionally present. Thanks to our worldwide network of specialists, we can cover
every need in the field of foreign exchange trading – from a simple currency exchange to
the complex hedging of strategic transactions.
Despite the strains, thanks to a high degree of diversification and innovative entrepreneur-
ship, the Swiss economy has once again proved itself robust in 2020. We are now asking
ourselves: What will happen in the new year? Read the assessments of Swiss companies
and experts on this topic. Find out which strategies are likely to prove themselves in which
market environment and gain insight into the hedging strategies of Swiss companies
through exciting client interviews.
We hope to provide you with interesting insight and inspiration for your business activities
and wish you a pleasant read.
Andreas Gerber
Head of Corporate Banking
Visit us on the internet at credit-suisse.com/fx.
FX Survey 2021. Assessment of exchange rate developments. 3
Interview with Thomas Gottstein, CEO of Credit Suisse Group
Optimistic developments
in the domestic market
Mr. Gottstein, you’ve been Global CEO of In its FX Survey, now published for the fifth time,
Credit Suisse since February 2020. How have Credit Suisse looks at the expectations and challeng-
you found your first year or so in the role? es facing Swiss companies. What advice would you
It has been – and remains – a challenging time for give companies with regard to foreign exchange
Credit Suisse, our employees, and our clients. Health is our risks?
number one priority. Supporting the Swiss economy – in Geopolitical risks have increased in recent years. That’s
particular by providing companies with liquidity and capi- why we’re also seeing a greater degree of nervousness
tal – is likewise vital during this period. At the same time, and uncertainty in global foreign exchange trading. Price
as a bank we need to be able to operate profitably in this fluctuations often arrive unexpectedly in the foreign
challenging environment and have high levels of liquidity exchange market, and can be severe. To avoid uncertainty,
and capitalization. Despite the crisis, we were able to make entrepreneurs need to engage in forward planning, and
a number of important decisions for our bank. At a global that includes the FX side of things. The hedging of foreign
level, we created a new structure for Investment Banking; exchange risks increases planning certainty and helps
we also brought the risk and compliance functions together companies focus on their core business.
in a single unit. In Switzerland, we decided to fully integrate
Neue Aargauer Bank, and in digital banking we made huge The Swiss economy has overcome many crises in
strides with the launch of our innovative CSX offering. the past, and even in the current environment we’re
Although the situation remains challenging, Credit Suisse already seeing a return to more optimistic develop-
is very well positioned – so, I’m pleased to be able to look ments in the domestic market. What, in your view,
back on a very intensive and rewarding time. are the reasons for the high degree of resilience
shown by Swiss companies?
How has the economy fared since the outbreak It’s true that Swiss companies have yet again proven their
of the COVID-19 crisis, and how are things looking ability to weather crises. However, regardless of the
at the moment? resilience shown by companies, some sectors have been
All regions of the world took a major economic hit in the impacted much more severely than others. In general,
spring of 2020. Life temporarily slowed almost every- it’s impressive to see how quickly the process of adjusting
where, and parts of the economy suffered greatly from the to difficult conditions has occurred in many areas. It says
restrictions on public life. Although many countries and a lot about Switzerland’s durability as a business location.
regions experienced a V-shaped economic recovery over Framework conditions are very good in Switzerland, and
the summer, the slope of the V was very lopsided in a lot we need to ensure that this remains the case. Our entre-
of instances. That means the economy will be slow to preneurs are innovative and tenacious – look at how well
recover in those places, given the fresh wave of COVID-19 they coped overall with the Swiss franc shock and the
and associated lockdown measures. Economic output has financial crisis, for example.
now started to fall again in some countries, particularly in
Europe. By contrast, the situation in Asia – and especially
China – looks much more stable. The Swiss economy
seems to be coping well despite being badly affected by
the second wave. This is partly down to the resilience of
Swiss companies, but the support measures implemented
at an early stage have also played a significant role.
4
Lastly, on a personal note: What associations do land, we are privileged to live in a country that’s so
foreign currencies have for Thomas Gottstein the beautiful and diverse – both in terms of scenery and
person? culture. Our political stability and persistently low rates
I personally associate foreign currencies with vacation of unemployment compared with other countries are equal-
and travel – just like many people, no doubt. That said, ly positive aspects. Nor should we forget the Swiss franc
the past months have highlighted the fragility of worldwide – still one of the world’s most important currencies and
networks, globalization, and international travel. In Switzer- a “safe haven.”
FX Survey 2021. Assessment of exchange rate developments. 5
Credit Suisse FX survey 2021
Hedging ratios no higher
despite coronavirus pandemic
1,088 respondents Widely scattered predictions for USD, but more con-
In many respects, 2020 was a roller coaster ride. The sensus on sterling
coronavirus pandemic posed major challenges, especially for Responses concerning the USD were also more mixed
companies, and called for a high degree of flexibility in these than ever before. Roughly 45% of the companies surveyed
uncertain times. So, the fact that over 1,000 companies predicted a rate of 0.90 to 0.94. Another approximately
took part in our annual FX survey for 2020 appears to 40% saw the USD hitting 0.95 to 1.00 by the end of 2021.
be cause for celebration. Nearly one-quarter of them did By contrast, there seemed to be a little more agreement
business with imports, and another quarter were involved in concerning the British pound (GBP) than in previous surveys.
exports. An additional 40% or so do both, and the remain- The differences between the GBP forecasts were the widest
ing number, just over 10%, focus their business activities shortly after the vote on Brexit in June 2016, but they grad-
on Switzerland. In other words, the vast majority of survey ually narrowed again in the years that followed. At almost
respondents do business internationally. 60%, most respondents expect a GBP/CHF exchange rate
between 1.15 and 1.20 by the end of 2021.
Euro clearly the most important foreign currency,
followed by the US dollar 44% expect economic growth
A closer examination of the frequency at which purchase When it comes to the Swiss economy as a whole, opin-
and sales transactions are conducted in different currencies ions of the companies surveyed also differed more widely
reveals that the euro zone is the main trading partner. Over than was the case in previous years. Though 44% expect
80% of survey respondents made at least some of their economic activity to grow in 2021, 30% are anticipating a
purchases in euros (EUR). That made the euro even more recession. The remaining respondents (approximately 25%)
important for sourcing than the Swiss franc (71%). On the assumed that economic output would remain stable in 2021.
sales side, however, the latter maintained the upper hand,
with 70% of respondents billing at least a portion of their Participants believe the SNB’s key interest rate could
sales in Swiss francs (CHF). Over 60% issued invoices in still be around -0.75% at the end of 2021
euros. The second most important foreign currency was the On the issue of monetary policy, there was widespread
US dollar (USD), used by 45% of respondents for purchas- agreement. Nearly 90% predicted the key interest rate of
es and 36% of respondents for sales. Other currencies, -0.75% set by the Swiss National Bank (SNB) would not
such as the British pound sterling (GBP), played a minor change as of the end of 2021. Only 6% of respondents felt
role by comparison. it was likely the rate would be lowered into deeper negative
territory. Even fewer – namely 4% – expected the SNB to
Companies not expecting the euro to appreciate raise its key interest rate.
The extreme uncertainty was also seen in the reported
currency forecasts of the companies surveyed. When the Currency hedging in uncertain times
survey was conducted in the fall of 2020, the predictions Considering the high level of macroeconomic uncertainty
for the EUR issued by the respondents exhibited a wider and the wide range, or divergence, of estimates concerning
range than in any other forex survey conducted until then. the development of exchange rates for the EUR and USD,
The specific forecasts for the EUR/CHF exchange rate companies would be well advised to hedge at least some
extended from below 0.85 to 1.20. However, nearly 80% of their currency risks. That is because this year’s survey
of respondents expected the rate to be between 1.05 and has revealed that, first and foremost, the EUR and the USD
1.10 as of the end of 2021. are very important both for purchasing inputs and when
selling products or services. By hedging their currency risks,
companies can effectively safeguard against exchange
rate fluctuations, thereby establishing a more reliable basis
for planning.
6
Participants estimate EUR/CHF
rate of 1.07 at end of 2021
Respondents expected, on aver- Respondents expect lower euro exchange rate than Credit Suisse
age, a EUR/CHF exchange rate of Exchange rate forecasts and actual exchange rates for the corresponding year-end
(December averages)
1.07 as of the end of 2021. In oth-
er words, they anticipate a further
slight devaluation of the EUR versus 1.25
the CHF. Credit Suisse analysts, by 1.20
contrast, predict a slight apprecia- 1.15
tion of the euro, forecasting a EUR/
1.10
CHF exchange rate of 1.10 by the
end of 2021. For the past four years, 1.05
survey participants have been more 1.00
pessimistic about the EUR than 0.95
Credit Suisse has been. That expec-
2019
2020
2021
2017
2018
tation proved to be correct in the past
three of those years. However, the dif-
ference between the CS forecast and EUR/CHF
the survey results was relatively small
Credit Suisse (forecast) Clients (forecast) Actual exchange rate
for 2021.
Sources: Credit Suisse FX surveys for 2017–2021, Credit Suisse
Survey participants forecast an ex-
change rate of 0.93 for the dollar
The companies surveyed believe the Companies believe the USD will recover somewhat
weakness of the dollar ought to fade Exchange rate forecasts and actual exchange rates for the corresponding year-end
(December averages)
a little by the end of 2021. Accord-
ingly, respondents predicted a USD/
CHF exchange rate of 0.93. That 1.05
puts them clearly above the estimates
of Credit Suisse, where an exchange 1.00
rate of 0.88 is anticipated by the end
0.95
of 2021. While the forecasts made by
clients and Credit Suisse FX strate-
0.90
gists in recent years were quite close
to one another, the divergence with 0.85
respect to 2021 is relatively significant.
2019
2020
2021
2017
2018
USD/CHF
Credit Suisse (forecast) Clients (forecast) Actual exchange rate
Sources: Credit Suisse FX surveys for 2017–2021, Credit Suisse
FX Survey 2021. Assessment of exchange rate developments. 7
Credit Suisse FX survey 2021
Respondents forecast a GBP/
CHF rate of 1.18
Increased certainty concerning Brexit reflected in forecasts The situation with the British pound
Exchange rate forecasts and actual exchange rates for the corresponding year-end sterling is exactly the opposite.
(December averages) As mentioned above, there was more
consensus for 2021 when it comes to
1.50 GBP forecasts between the surveyed
1.40 participants than in past surveys.
The predictions made by respondents
1.30 and Credit Suisse regarding 2021
1.20 match one another more closely.
The companies surveyed anticipate on
1.10 average a GBP/CHF exchange rate
1.00 of 1.18 at the end of 2021. Analysts
at Credit Suisse expect a rate of 1.19.
2019
2020
2021
2017
2018
In the past four years, the more pessi-
mistic view held by survey participants
GBP/CHF concerning the pound sterling versus
the Swiss franc has paid off.
Credit Suisse (forecast) Clients (forecast) Actual exchange rate
Sources: Credit Suisse FX surveys for 2017–2021, Credit Suisse
Euro is the number one
purchasing currency
82% of respondents buy in EUR Foreign currencies played an im-
“In which currencies do you source your products or services (in percent)?”; portant role in procuring goods and
share of companies services from other businesses. The
EUR emerged as the key currency for
Currency used for sourcing Don't know or N/A procurement, with 82% of survey par-
Currency not used for sourcing Average share of currency for sourcing
ticipants buying inputs in EUR. For all
companies sourcing products and
CHF 71% 26% 47% services in the euro zone, an average
EUR 82% 15% 46%
of 46% of all purchases were made
in EUR. The percentage was roughly
USD 45% 51% 36% the same for the CHF, underscoring
once more the importance of the EUR
GBP 6% 89% 16% for procurement.
JPY 2% 93% 19%
Other 8% 87% 24%
0% 20% 40% 60% 80% 100%
Sources: Credit Suisse FX survey 2021
8
EUR and USD also not to be
underestimated in sales
The currency most frequently used in CHF remains chief currency for selling
sales billing is the CHF. At the time “In which currencies do you sell your products or services (in percent)?”;
share of companies
of the survey, 70% of companies had
customers who paid in CHF. However,
Currency used for sales Don't know or N/A
the role of foreign currencies in selling
Currency not used for sales Average share of currency for sales
goods and services should not be
underestimated. Of the respondents,
CHF 70% 27% 65%
62% and 36% indicated that they also
made frequent sales in EUR and USD, EUR 62% 35% 42%
respectively. The average shares of
total sales that they then received is USD 36% 59% 38%
relatively high, at 42% and 38%.
GBP 7% 88% 14%
JPY 3% 93% 18%
Other 7% 88% 23%
0% 20% 40% 60% 80% 100%
Sources: Credit Suisse FX survey 2021
60% of foreign exchange risk
was hedged
Of the companies surveyed, 40% 40% hedged part of their foreign exchange risks
indicated that they hedge their foreign “Do you hedge your foreign exchange risks? If so, what is your hedging ratio?”;
responses from companies
exchange risks. On average, the per-
centage of companies that performed
hedging was roughly 60%. The survey
also showed that companies using
higher proportions of foreign curren- Currency
cies in sourcing more often tended to hedging ratio
hedge their foreign exchange risks. 60%
There was a similar trend noticeable Currency Currency
in the area of sales. hedging: hedging:
No Yes
60% 40%
Percentage
not hedged
40%
Source: Credit Suisse FX survey 2021
FX Survey 2021. Assessment of exchange rate developments. 9
Credit Suisse FX survey 2021
Despite appreciation of CHF,
only 35% of exporters engaged
Import companies hedged most frequently in hedging
“Do you hedge your foreign exchange risks? If so, what is your hedging ratio?”; Among import companies, 47%
responses from companies by foreign trade activity hedged their foreign exchange risks.
That means this sector had the
highest percentage of companies that
35%
Export Percentage perform hedging. The hedging ratio
56%
that hedge
determined for the export sector was
particularly notable. First, only 35%
47%
Import of export enterprises hedged their
60% Percentage
hedged currency risks. Second, the average
of 56% that did hedge was a little
40% lower than in other sectors, where the
Both
61%
percentage of businesses that hedged
their transactions was roughly 60%.
38%
In Switzerland only
61%
0% 20% 40% 60%
Source: Credit Suisse FX survey 2021
Flexibility is important during
the coronavirus pandemic
Coronavirus pandemic did not result in higher hedging ratio The majority of respondents have
“Have you increased your hedging ratio since the outbreak of the coronavirus?”; not increased their hedging ratios
responses from companies that hedge their foreign exchange risks since the outbreak of the coronavirus
pandemic. Uncertainty surrounding
No, in order to remain flexible and benefit future cash flows and greater flexibility
22%
from increased volatility seem to have played a major role in
No, because of the increased uncertainty that decision. However, 53% appear
14%
in future cash flows to have had different reasons. Some
Yes, because of currency fluctuations of those companies were probably
6%
or appreciation of the Swiss franc already hedging 100% of their foreign
exchange risk, thus excluding the
Yes, for other reasons 3%
possibility of increasing their ratio.
Yes, due to greater uncertainty surrounding
COVID-19 2%
No, for other reasons 53%
0% 10% 20% 30% 40% 50% 60%
Source: Credit Suisse FX survey 2021
10Exchange rates most frequently
cited as deciding factor
Exchange rate volatility played a role Many factors influence hedging ratios
for roughly one-fifth of the surveyed “What factors contribute to how you determine your hedging ratio?”; (multiple answers
possible), share of companies that use hedging
companies that hedged their foreign
exchange risk. In general, however,
there were a number of factors that Actual exchange rate Actual exchange Exchange rate Political
seemed even more important when level: rate versus volatility: environ-
42% predetermined, 26% ment
determining the hedging ratio. Com- budgeted rate: nationally
panies most frequently based their 38% and inter-
decisions on the actual exchange rate nationally:
level. Nevertheless, internal hedging 17%
guidelines, deviations in the exchange
rate from the budgeted rate, and Internal hedging Your assessment of Amount of Cost of hedging
guidelines: the exchange rate: operating and interest
personal assessment of the exchange
40% 35% margin: rate spread:
rate also played a significant role. 16% 14%
Central banks'
monetary
policies: 9%
Source: Credit Suisse FX survey 2021
No adjustments to FX
cash holdings
Companies showed restraint when Import/export sector sees trend toward shrinking FX cash holdings
changing their foreign currency cash “Have you changed the amount of foreign currencies you hold in cash since the outbreak of
the coronavirus?”; responses from companies by foreign trade activity
holdings. Of the respondents, 72%
did not make any changes. In the
export sector, the percentage was a No change Increase Reduction
little lower, at 65%. While international
companies experienced a reduction in Total 72% 12% 17%
their holdings of foreign currencies in
cash somewhat more frequently than Export 65% 17% 18%
an increase, the situation was exactly
the opposite for companies that con- Import 72% 13% 15%
centrated on business in Switzerland.
Both 73% 8% 19%
In Switzerland
81% 12% 8%
only
0% 20% 40% 60% 80% 100%
Source: Credit Suisse FX survey 2021
FX Survey 2021. Assessment of exchange rate developments. 11Rosy outlook for Swiss exports
Burkhard Varnholt,
CIO of Credit Suisse (Switzerland) Ltd.
Following the 2020 recession, our most important export They distinguish themselves with all four characteristic
markets (EU, China, and the US) will likely see above-aver- features of strong currencies:
age growth in 2021. This is indicated by the pent-up ȷȷ Lasting current account surplus
consumer demand from 2020, the fiscal stimulus, and ȷȷ Highest real interest rates compared internationally
many corporate restructuring plans. The expectation that
society and the economy will find ways to live with the virus ȷȷ Rising productivity
also points to this. The economic and epidemiological ȷȷ Increasing investment from abroad.
recovery of North Asia is a positive signal for the rest of the
world. This is particularly important for the Swiss economy,
because Swiss products are especially popular in China, In this context, investments are coming less from the West
where the growing demand for these products already and much more from other Asian countries. All signs point
signals the economic recovery of the region. This applies to to North Asia being ahead of the curve next year.
pharmaceutical products, food products, watches and
luxury goods, as well as to Swiss financial services. Challenges lead to agility
Germany, our main trade partner in Europe, and the US are The recovery of the world economy will mainly have a
also likely to overcome the recession in 2021. In short, positive impact on Swiss SMEs that have established
export prospects for Swiss companies all over the world are themselves in attractive and, in some cases, global market
likely to grow again in 2021. niches. The strong franc, the high Swiss cost structures,
and the intense price competition will ensure that small and
Swiss franc remains strong medium-sized enterprises display their traditionally high
Next year, the export business will also be faced with the level of agility. After all, in contrast to foreign companies,
Swiss franc as one of the strongest currencies in the world. these challenges force Swiss SMEs to annually optimize
The US dollar seems to have passed its peak and is their value chains. Together with the sector structure,
weakening. This could lead to the appreciation of gold competitiveness drives the recovery of the Swiss economy.
being somewhat concealed from Swiss investors. The euro Additionally, the flexible labor market, short commutes,
can also no longer show any positive real interest rates, good education standards, and the high quality of life also
with the exception of a few foreign investments and the contribute to Switzerland’s continued significant popularity
world’s largest current account surplus. The big winners among talents and companies.
of 2021 will therefore likely be North Asian currencies.
12FX Survey 2021. Assessment of exchange rate developments. 13
14
Credit Suisse forecasts
Europe USA
Economic momentum is likely to be very subdued this In the US, the decrease in economic momentum last year
winter; after all, the pandemic is nowhere near being under was less significant than in Europe. Due to the more
control. Thereafter, the vaccination campaigns will likely moderate decrease, in turn, the recovery there this year will
become broader, enabling a gradual easing of government likely be less significant than on our side of the Atlantic. In
and self-imposed restrictions that will be reflected in the absence of a short-time work system, the US unem-
increased mobility and economic momentum, especially in ployment rate is directly coupled with economic changes,
the spring. In this context, the recovery in 2021 will be and unemployment support also depends heavily on the
strongest in those countries that suffered most in 2020. political situation. Uncertainty is accordingly high. In
Given the extremely low inflation, the European Central contrast, the US central bank, the Federal Reserve, will
Bank (ECB) will maintain its low interest rates until further also continue to supply the markets with ample USD
notice. liquidity and will likely not turn the interest rate screw.
Europe has suffered greatly under the coronavirus Massive ups and downs in the unemployment rate
pandemic US unemployment rate, seasonally adjusted in %
Change in real economic output between the third quarter of 2019 and
the third quarter of 2020 in % 16.0
4.0
14.0
2.0 12.0
10.0
0.0
8.0
-2.0 6.0
4.0
–4.0
2.0
–6.0 0.0
China Switzerland Sweden US France Germany Italy 01/2000 01/2003 01/2006 01/2009 01/2012 01/2015 01/2018
Sources: Datastream, Credit Suisse Sources: St. Louis Federal Reserve, Credit Suisse
FX Survey 2021. Assessment of exchange rate developments. 15Credit Suisse forecasts
China Switzerland
It seems that China, like many other Asian countries, has Switzerland has been hit hard by the pandemic; however,
had the pandemic largely under control since mid-2020. the economic downturn was comparatively less than in
With a global economic output share of 30%, Asia is now comparable foreign countries. This is, first, due to the high
key to developments in global trade. China’s robustness share of the pharmaceutical industry, which at times made
is therefore partly responsible for the rapid recovery up almost half of the entire export volume. Second, the
of the global trade volume. Given the solid economic measures to combat the spread of the virus were generally
development, the Chinese government and central bank less strict than abroad. Third, the measures for supporting
are likely to hold back with additional economic stimulus the economy were extremely quick and targeted. However,
measures. The desire to base the growth on a more similar to the rest of Europe, the return to a sustainable
sustainable footing, however, will likely persist and place growth track will only be realistic in the spring.
limits on the pace of growth.
World trade nearly at pre-crisis levels as of the end of Pharmaceutical industry as a growth pillar
September Pharmaceutical exports in CHF mn by country, seasonally adjusted, and
World trade volume index, seasonally adjusted, 2010 = 100 percentage of total exports
130 12,000 60%
125 10,000 50%
120 8,000 40%
115 6,000 30%
4,000 20%
110
2,000 10%
105
0 0%
100 Dec. Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sep. Oct.
2019 2020 2020 2020 2020 2020 2020 2020 2020 2020 2020
95
90 Others Germany China
US Italy Pharma share
2010 2012 2014 2016 2018 2020
Source: CPB World Trade Monitor. Last data point: September 2020 Sources: Federal Customs Administration, Credit Suisse
16USD/CHF exchange rate EUR/CHF exchange rate
Despite the appreciation of the USD during the spread of During the first wave of the pandemic, the CHF was under
the pandemic, we expect that the USD will depreciate upward pressure against the EUR. However, the Swiss
again in the medium term. The interest rate cuts by the US National Bank (SNB) could at least limit the appreciation
central bank (Federal Reserve) in the first half of 2020 through targeted interventions. Since then, the CHF has
have reduced the interest rate advantage of the USD tended to lose strength and the SNB is intervening much
against other currencies. Additionally, the negative perfor- less. Positive news on coronavirus vaccines or agreements
mance and fiscal balance sheet of the USA carry long-term in Europe have reduced the demand for “safe haven”
risks for the USD. We therefore anticipate that, in the currencies such as the CHF.
coming months, the USD will depreciate against many
currencies, such as the EUR and the CHF.
Dollar will likely depreciate SNB intervened massively during the first half of 2020
US dollar index (changes against main currencies) Jan. 1, 2017 = 100 In CHF (millions)
16,000
105 14,000
12,000
100
10,000
95 8,000
6,000
90
4,000
85 2,000
0
80
–2,000
75 –4,000
01/01/2017 01/01/2018 01/01/2019 01/01/2020 02/2018 08/2018 02/2019 08/2019 02/2020 08/2020
Sources: Bloomberg, Credit Suisse Sources: Datastream, Credit Suisse
FX Survey 2021. Assessment of exchange rate developments. 17FX market - reflecting on 2020
A turbulent year
Dr. Günter Grimm
Foreign exchange strategist, Credit Suisse AG
The foreign exchange market experienced a highly eventful In Q2, the appreciation of the Swiss franc on a
2020. The events were largely driven by the COVID-19 trade-weighted basis reached its highest point thus far.
pandemic and its impact on monetary and fiscal policies in However, the SNB also intervened in the foreign exchange
the affected countries. Other news included the negotiations market during that period, purchasing foreign currencies
between the European Union (EU) and the United Kingdom with an equivalent value of CHF 51.5 billion. The main event
(UK) on the future relationship between the two trading was the presentation of a roadmap on April 21 for recovery
blocs as well as the US presidential elections. in the euro zone. The presentation established the principles
for overcoming the COVID-19 pandemic and setting up a
The Swiss franc climbed 4.7% in the first quarter of 2020 recovery fund. On May 18, French President Emmanuel
based on the trade-weighted currency index of the Swiss Macron and German Chancellor Angela Merkel then
National Bank (SNB). The decision by the US to put introduced a joint proposal on a European recovery plan,
Switzerland back on the watch list of countries that allegedly which was received positively by the markets. The idea of
manipulate their currency was, in our opinion, the cause of shared liability for newly borrowed funds in particular
the general strength of the Swiss franc. In late December increased trust in the euro zone’s cohesion. In June, the
2019 and early January 2020, the first cases of COVID-19 ECB expanded its Pandemic Emergency Purchase Program
were reported in Wuhan, China, according to the World (PEPP), rolled out in March, by EUR 600 billion. The easing
Health Organization (WHO). The COVID-19 crisis escalated of COVID-19 restrictions led to improvement in the econo-
in late February as the virus spread not only in China but my. The purchasing manager sentiment indicators in Europe
also around the world. The deteriorating global economic bottomed out in April. In the US, labor market figures for
outlook heightened analysts’ expectations that the European June were considerably better than expected, which came
Central Bank (ECB) would lower interest rates, hurting the as a surprise. However, the Federal Reserve took a very
EUR/CHF rate. The ECB lived up to those expectations by cautious tone regarding further economic developments. In
announcing an extensive package of monetary policy Switzerland, the SNB left its policy rate unchanged at
measures on March 12 and expanding it on April 30. The -0.75%. Its president, Thomas Jordan, emphasized that
US Federal Reserve likewise responded to the COVID-19 expansionary monetary policy continued to be necessary to
pandemic with aggressive rate cuts and further measures ensure appropriate monetary conditions in Switzerland. He
aimed at easing monetary policy. On March 15 and 20, the added that, as the Swiss franc is still highly valued, the SNB
SNB announced its participation in a coordinated action to remained willing to intervene more strongly in the foreign
strengthen the supply of liquidity via the existing US dollar exchange market. The expansionary measures on a global
swap line. In its monetary policy assessment on March 19, scale and the improved economic data led to further
the SNB announced that it was intervening more in the recovery on equity and commodity markets, which had
foreign exchange market to help stabilize the situation. already begun towards the end of the previous quarter. The
In the US, the S&P 500 equity index fell 20%, hitting its move benefited cyclical currencies against the Swiss franc in
lowest point on March 23. Cyclical currencies, like the particular. For example, the AUD/CHF exchange rate made
Australian dollar and Canadian dollar, came under pressure up nearly all its losses from the previous quarter. The EUR/
against the Swiss franc as a result of the weakness on the CHF rate stabilized, and the USD/CHF fell, while GBP/
commodity markets. The pound fell significantly amid the CHF continued to suffer from the effects of the ongoing
uncertainty about the outcome of the Brexit negotiations. Brexit negotiations.
The strength of the Swiss franc prompted the SNB to
intervene in the foreign exchange market to the tune of
CHF 38.5 billion in the first quarter.
18In Q3, the trade-weighted Swiss franc again came under During the fourth quarter, the equity market in the US came
slight upward pressure, mainly against the US dollar. The under pressure towards the end of October, since fear of
new version of the Federal Reserve’s updated inflation the COVID-19 pandemic and the lack of fiscal incentives
target policy was interpreted by the market to mean that the increased ahead of the November 3 elections. At the
Fed would continue to pursue a highly expansionary beginning of November, the SNB stressed that, due to the
monetary policy for the foreseeable future to allow inflation low inflationary pressure and the persistent fragility of the
to overshoot its target in the near term. The announcement economic situation, its expansionary monetary policy – cou-
caused a steep drop in real US interest rates, dragging pled with negative interest rates and the willingness to
down the US dollar. The EUR/CHF rate benefited from the intervene – remained necessary. Sight deposits at the SNB
historic decision by the US heads of state and government increased in October, but they fell again partially the
on July 21 to draw up a recovery plan and financial frame- following month. The outcome of the US elections and
work covering the years 2021–2027. This was despite the positive news about the COVID-19 vaccine were the most
ECB’s continued extreme monetary easing and verbal significant events in November. After Democrat Joe Biden
interventions against the strength of the EUR/USD rate. won the presidency but the Senate remained in Republican
The SNB left its policy rate unchanged at -0.75% and hands, the markets turned their attention once more to the
announced its willingness to intervene in the foreign “COVID-19 cycle.” Following weeks of relatively negative
exchange markets. Based on the trend in sight deposits, we news in which the market had been concentrating on rising
estimate that the central bank was active on the foreign rates of infection and new lockdowns in Europe and the US,
exchange market once more during that period but not quite the markets were relieved to hear positive messages
as much as in the two preceding quarters. The pound saw concerning a vaccine. During its December meeting, the
modest appreciation after optimism began spreading about ECB announced further monetary easing measures. Thus,
the likelihood of a positive outcome to the Brexit negotia- the central bank increased and extended the purchases of
tions. bonds. In addition, it will also grant more long-term credits at
favorable conditions for another year.
FX Survey 2021. Assessment of exchange rate developments. 19Planning and flexibility: Golden rules of currency hedging
Lisa Mahi, FX Sales Corporate & Institutional Clients, aims to provide
her clients with expertise and to add value. In this interview, she
reflects on the events of the last year, their impact on exchange
rates, and on promising strategies for FX management. From
prevention to crisis management – our expert has the answers.
Lisa, the past year has brought plenty of surprises. the notional amount and coupon at maturity occurs either in
What has 2020 taught us, in your view? the investment currency or in the chosen alternative curren-
2020 has reminded us, once again, that unpredictable cy at a pre-agreed exchange rate. Therefore, it is important
events can – and do – occur. In the past five years, we that clients also have an intrinsic need in this alternative
have experienced events like this, such as the removal currency in case they would get converted.
of the EUR/CHF floor by the SNB, the Brexit referendum,
and the outcome of the US presidential election in 2016. What should companies absolutely avoid when
In the last year, we’ve seen COVID-19 take the whole it comes to currency management?
world by surprise and turn so many things upside down. A currency pair trading within a particular range won’t
That’s why it is really important for a company to hedge remain at that level forever. The question is not if, but when
its exposure. the price will break out of its current range.
Does this environment have an impact on This was confirmed last year in the case of the USD/CHF
interest rates? currency pair. The dollar/Swiss franc exchange rate
So, we could scarcely have expected the Fed’s key interest remained within a narrow band of between 0.96 and parity
rates to be close to zero at the end of 2020. But in the in the second half of 2019. Companies which needed to
early part of the year the Fed was forced to make a rapid sell the US dollar against the Swiss franc could expect a
cut in key interest rates from the 1.50–1.75% target range rate of 0.99 or parity in order to protect their financial
to 0–0.25%, in other words back to the 2015 level. position; most of them therefore decided to keep their
position unhedged. But in fact this was a good time for
Expectations that the European Central Bank would hike hedging as the volatility was low. We then began 2020 with
the interest rate on its deposit facility in the first quarter of an exchange rate of 0.98, but over the course of the year,
2021 likewise evaporated quickly. We’re therefore likely the dollar unexpectedly went to 0.90 in August 2020. Many
to remain in a low interest rate environment in the short to companies hadn’t anticipated this, and therefore weren’t
medium term. And that’s the situation we’ve got to address hedged. So, some of our clients had to sell USD against
right now. CHF at below the benchmark rate and therefore suffered
a major loss versus their reference price.
Is there still a solution for companies that are looking
for a positive return on their liquidity? And how do you advise companies to deal with
Due to their activities, our clients mainly have cash in a situation like the COVID-19 pandemic?
CHF and EUR and have to take into account this issue Past events show that protecting the company’s financial
in conducting their cash management. position or profit margin is the key thing. We strongly
recommend hedging exchange-rate risk against currency
Many clients make use of a liquidity optimization instru- fluctuations. Even if a company has less visibility and more
ment called “Dual Currency Deposit.” This allows them to uncertainty due to the COVID situation, it is important to
make a deposit with a higher return compared to a tradi- hedge the exposure. The more uncertainty a company has,
tional money market investment. However, as a foreign the more flexibility it will need.
exchange risk is linked to this solution, the redemption of
20During the crisis, what have proved to be the best And, as I mentioned before, a degree of flexibility will help
strategies for addressing currency fluctuations? you cope with unexpected events such as those we’ve
The forward is still the preferred instrument, although it’s seen over the past year. If you follow these golden rules,
not always the right solution in a volatile environment. you’ll be in a better position to handle any crisis. As
The fact is, although a forward transaction means you’re partners, we at the bank are here to advise and support
hedged it also means you won’t be able to benefit from any you in this process.
movement in your favor. Nor do you have any flexibility
in terms of the amount. And in an uncertain environment The growth of digitalization in day-to-day work has
it’s always advisable to retain a certain amount of flexibility. been one of the main implications of the pandemic
Because you can never be sure whether your projections for many professions. Working from home is now the
will come true or not. Flexibility is therefore key. norm for many people around the world. What digital
solutions does Credit Suisse offers its clients in the
And how do companies achieve this flexibility when FX space?
it comes to currency hedging? Due to the pandemic, most of our clients were forced to
We recommend choosing basic hedging solutions, such work from home. As face-to-face contact was not possible,
as purchasing options, when volatility is low. Entering into we used the phone to give the best possible support. With
a participating forward is another attractive alternative “my Solutions,” we also offer an attractive FX trading
solution. That’s because you don’t need to pay a premium platform that proved very successful during the lockdown,
and you’re fully hedged for the amount but only liable for too. This allows clients to enter FX transactions, issue limit
50%. So, if the currency pair moves in your favor you can orders, view positions, and monitor market trends. More
benefit from an FX move in your favor on 50% of the than 200 currency pairs, including precious metals, are
nominal hedged. available on the platform. What’s more, during extended
opening hours – from 7:00 a.m. to 10:00 p.m. Swiss time
Is there actually a way companies can prepare – clients have direct access to this platform via online
for a possible crisis? banking.
Planning and preparing for a worst-case scenario is
important. Analyzing and hedging your currency exposures
helps you identify and deal with risks. Every company has
its own constraints. That’s why a bespoke strategy that’s
tailored to suit the needs of the firm is also vital.
Lisa Mahi, FX Sales Corporate
& Institutional Clients, is a
key contact when it comes
to currencies for companies
and institutions. She has
advised Credit Suisse clients
in the Suisse Romande region
since 2014.
FX Survey 2021. Assessment of exchange rate developments. 21Currency hedging strategies for every market environment
The last few months have been turbulent and characterized less ability to plan ahead, and higher volatility – a difficult
by major uncertainty. With the spread of the COVID-19 situation for many companies. Managing risks is more
pandemic and the introduction of – in some cases – severe important than ever before. Currency risks are one of the
restrictions, such as border closures and the closing of biggest challenges facing many companies due to today’s
entire sectors, many companies have lost a reliable basis high degree of interdependence in the international
for planning their operations. Moreover, market volatility has economy.
increased on account of the lockdowns. Major uncertainty,
For over 18 years, Irene Bussmann Table 1
from the FX Sales Desk in Zurich
has been advising corporate clients on Market Lower exchange rate Stable exchange rate Higher exchange rate
expectation/
hedging their foreign exchange risks
Product category
– first in the region of Basel and now
in Central Switzerland. Even though Basic hedging Buy a call option Risk reversal Forward transaction
the environment has constantly
evolved over the past few years, there Advanced hedging Leveraged risk reversal Leveraged risk reversal
are still proven approaches to hedging Outperformance Ratio knock-out forward Ratio knock-out forward
against or optimizing foreign exchange strategy
risks. The choice of hedging and
optimizing solutions is highly depen-
dent on a company’s market expecta-
tions, risk ability, and risk tolerance.
Table 1 shows this using the example
of an importer or the buyer of foreign
currencies.
Each solution has risks and benefits, Table 2
as Table 2 shows using the example
of an importer that wishes to cover its Product Brief description Hedging Advantages Disadvantages
need for euros. However, it is perfect- level
ly clear to Irene Bussmann that it Buy Call options are suitable for Fully ȷȷ rotection
P ȷȷ equires payment
R
always makes sense to hedge risks. a call clients who wish to protect hedged against higher of a premium upon
That is because currency hedging can option themselves against higher exchange rates concluding the
give companies a more reliable basis exchange rates but profit ȷȷ Full potential to transaction
completely from any devalu- profit from falling
for planning and allow them to focus
ation in the EUR. They are exchange rates
on their core business. prepared to pay a premium ȷȷ Losses are limited
for that right. The premium to the premium
is due two days after each paid in advance
transaction.
Forward Forward transactions safe- Fully ȷȷ rotection
P ȷȷ o potential for
N
transac- guard against undesirable hedged against higher participating in
tion movements in FX rates. exchange rates positive market
The trade(s) is/are executed movements
as arranged on the future ȷȷ OTC limit is required
date(s) of your choosing.
Depending on the inter-
est rate spread between
the currencies involved, you
will be charged extra or given
a discount on the spot price.
22Risk Risk reversal is suitable for Fully ȷȷ rotection
P ȷȷ If the exchange rate
reversal clients who wish to protect hedged against higher trades below or at
themselves against higher ex- exchange rates the lower strike level
change rates but do not want ȷȷ Potential for on expiry, the EUR
to miss out on extra profit participation down will have to be
potential. to the lower strike purchased at the
level lower strike level
ȷȷ OTC limit is required
Lever- Leveraged risk reversal Partially ȷȷ artial protection
P ȷȷ If the exchange rate
aged is suitable for clients who hedged against higher trades below or at
risk wish to protect themselves up to 50% exchange rates the lower strike level
reversal against higher exchange ȷȷ Potential for on expiry, the EUR
rates but do not want to miss participation down will have to be
out on extra profit potential. to the lower strike purchased at the
However, protection applies level lower strike level
only to a portion of the no- ȷȷ Protection applies
tional amount. only to a portion of
the notional amount
(leverage)
ȷȷ OTC limit is required
Ratio The ratio knock-out forward No protec- ȷȷ rofit potential
P ȷȷ If the barrier is
knock- is a bespoke OTC solution tion, only as long as a reached or breached
out that gives you the opportu- optimization knock-out event at any time during
forward nity to buy a portion of your does not occur the observation
(RKOF) foreign currency needs at a period, the entire
lower level than the average transaction is
forward rate on the trade terminated
date, as long as the barrier immediately
is not reached or breached. ȷȷ An RKOF is not a
hedging solution
ȷȷ OTC limit is required
What does all this mean exactly? Table 3
Using the example below, Irene
Bussmann explains the various sce- Product Price levels
narios a company may face and how
different hedging and optimization Buy a call option Strike price: 1.1000
solutions work depending on market Average premium: 0.75% of notional value in EUR
conditions. Therefore, hedging a total of EUR 1 million, for example, would cost
EUR 7,500. The premium is due two days after each transaction.
A Swiss corporate client imports
Forward transaction Average forward rate: 1.0733
products from all over Europe and
has a regular, monthly need for Risk reversal Higher strike price: 1.1000
euros. To ensure it has a good basis Lower strike price: 1.0585
for planning, the company wants to
Leveraged Higher strike price: 1.0805
hedge or optimize its need for the next risk reversal Lower strike price: 1.0585
12 months. Table 3 illustrates a selec-
tion of various hedging and optimizing Ratio knock-out Strike price: 1.0650
solutions for 12 monthly expiration forward Knock-out barrier: 1.1100
dates.
FX Survey 2021. Assessment of exchange rate developments. 23Currency hedging strategies for every market environment
Now, what happens if the company Table 4
decides to purchase a call option
and the EUR/CHF exchange rate on Cash flows EUR/CHF = 1.0000 EUR/CHF = 1.0750 EUR/CHF = 1.1500
the expiration date falls to 1.0000, Buy a call option Option expires Option expires You buy EUR at
or what happens if the EUR/CHF worthless. worthless. 1.1000.
rate climbs to 1.15 on the expiration You can purchase your You can purchase your
date in the case of a leveraged risk euros on the market. euros on the market.
reversal? Forward transaction You buy EUR at You buy EUR at You buy EUR at
an average price an average price an average price
Table 4 shows an analysis of the cash of 1.0733. of 1.0733. of 1.0733.
flows if the EUR/CHF rate depreci-
ates to 1.0000, experiences sideways Risk reversal You buy EUR at Option expires You buy EUR at
1.0585. worthless. 1.1000.
movement and remains at 1.0750, You can purchase your
and if the EUR/CHF rate climbs to euros on the market.
1.1500.
Leveraged risk You buy twice the Option expires You buy the notional
reversal notional amount in worthless. amount in EUR at
EUR at 1.0585. You can purchase your 1.0805.
euros on the market.
Ratio knock-out You buy twice the You buy the notional The knock-out barrier
forward notional amount in amount in EUR at of 1.1100 was
EUR at 1.0650 as long 1.0650 as long as breached. The
as the knock-out barrier the knock-out barrier optimizing transaction
has not been reached has not been reached is canceled.
or breached during or breached during
the term. the term.
Early analysis of your cash flows is
essential to finding the appropriate
hedging or optimizing strategy that
best meets your needs. However, your
personal market assessment and your
company’s internal hedging regula-
tions can affect your choice as well.
Have we sparked your interest? Our
specialists in the various regions look
forward to receiving your call and will
be glad to assist you in devising a
hedging or optimizing strategy tailored
to your needs.
Irene Bussmann has been working
for Credit Suisse for over 20
years, 18 of those in FX sales.
She manages and advises
corporate clients in Region Central
Switzerland.
24FX Survey 2021. Assessment of exchange rate developments. 25
Interview with Dr. Andréa M. Maechler, member of the Governing
Board of the Swiss National Bank
Monetary easing as a pivotal
strategy. Using the right tools
to tackle the coronavirus crisis.
The Swiss National Bank (SNB) has Let’s now turn our attention to the economy. The
implemented a variety of measures pandemic has caused considerable turbulence on
the markets and forced the closure of borders as
during the coronavirus crisis in well as entire sectors of the economy. What mea-
order to counteract the uncertainty sures did the SNB implement in response?
The pandemic has plunged both Switzerland and the global
plaguing the markets. In this inter- economy into a sharp recession. Governments around the
view, Dr. Andréa M. Maechler, world have responded by introducing fiscal packages, and
the central banks have worked in tandem with these
member of the Governing Board, packages by introducing measures to generate additional
talks about the strategy employed economic stimulus. The SNB has a dual approach to
stabilizing the Swiss economy: First, while we were in the
by Switzerland’s central bank and depths of the crisis it was vital to react quickly and provide
likely future money market trends. financial aid. Within a very short period of time we set up
the COVID-19 refinancing facility to help increase liquidity
with the banks, which they in turn have used to support
businesses. This was only possible thanks to the close
Many people have been working from home since the collaboration between the federal government and the
coronavirus pandemic began. What is the current banks. Second, our established monetary policy instru-
situation at the SNB, Dr. Maechler? ments remain central to maintaining adequate monetary
Many things have changed in the wake of the very particu- conditions. By intervening on the foreign exchange market,
lar circumstances triggered by COVID-19. The SNB is no we are able to counter additional upward pressure on the
exception. That said, we remain every bit as committed as Swiss franc. The negative interest rate not only affects the
we have always been to fulfilling our obligations. During the exchange rate but also creates favorable financing condi-
first wave of the virus, we introduced a strategy of home tions for business and for the state. In order to further
working for all roles that do not require people to be underpin the supply of credit, we provided additional relief
physically present. Certain teams that perform critical to the banks by increasing the threshold factor and deacti-
functions have switched to a split operations mode, vating the countercyclical capital buffer. However, economic
alternating between home working and being physically development in both Switzerland and internationally remains
present. Despite all these changes, operations continued vulnerable to setbacks, making the monetary policy environ-
successfully. We were (and remain) well positioned from ment incredibly challenging.
both an operational and a technological perspective. For
me, the greatest obstacle presented by working in this way And has the SNB taken any tangible steps to counter
is actually talking to people. It can be challenging to share the uncertainty on the financial markets?
information and also to maintain good interpersonal Alongside the comprehensive fiscal policy and monetary
relationships when working remotely. To succeed, we must policy measures implemented by the central banks, one
not only use new tools effectively in order to collaborate but other key factor in bringing stability to the financial markets
we must also be agile and adaptable in our approach. Our during the peak of the crisis was the SNB’s collaboration
SNB colleagues have really risen to this challenge. with five other central banks as part of the existing US-dol-
lar liquidity swap agreement. The aim of this coordinated
action was to consolidate the supply of US-dollar liquidity to
the markets. The price of US-dollar liquidity was reduced,
meaning that the impact of tensions in the global US dollar
financing markets on the supply of credit for households
26and businesses was successfully mitigated. And in addition and generous threshold factors keep the burden on the
to all this there are the instruments that were already in use banks as low as possible. The SNB’s negative interest rate
prior to the pandemic: During the period of particular does have knock-on effects, though. It presents a chal-
uncertainty we therefore doubled our efforts to ensure that lenge for banks, pension funds, insurance companies, and
there would be no excessive revaluation of the Swiss franc savers. In certain circumstances it can also have adverse
and to stabilize developments by intervening on the foreign effects on financial stability, if the desire to secure a return
exchange market. leads to excessive risks being taken. It is not the negative
interest rate in Switzerland that is the major challenge,
though, but rather primarily the global low interest rate
The Swiss franc is likely to remain a safe haven in the environment. Why is that the case? Because it is a global
future. and structural phenomenon. Real interest rates have fallen
globally over the long term as a result of changing demo-
Despite everything, there has been a revaluation of graphics and declining productivity growth. The SNB
the Swiss franc as a result of the coronavirus crisis. cannot escape these challenges.
What do you think are the main drivers of this trend?
Switzerland enjoys political and economic stability, low Globally, however, central banks have been less
inflation, and robust state finances, which means the Swiss focused on interest rate cuts and more on unconven-
franc remains a safe haven for many investors worldwide, tional measures such as quantitative easing in recent
highly sought after in the face of increased uncertainty on months. Do you believe that controlling interest rates
the financial markets. In recent years, upward pressure on is becoming less important?
the Swiss franc has often increased in waves during times Interest is a monetary policy instrument and remains of
of crisis – as we witnessed just recently during the peak of central importance. However, interest rates are already at a
the coronavirus crisis. On the markets, we have observed very low level: Globally, more than 25% of bonds currently
that the increased demand for the Swiss franc during this generate a negative yield. The key interest rates of many
period was driven in particular by short-term investors who industrialized nations are close to or below zero. So the
were either banking on further revaluation of the Swiss margins have narrowed somewhat. This does not mean,
franc or wanted to hedge their portfolio by making a “safe however, that interest rate control has lost its significance
haven” investment. entirely. In some countries there has been a shift to some
extent toward other, more extensive, measures such as
And how would you sum up the current situation with quantitative easing – an approach used by the ECB and the
the Swiss franc? Fed, for instance. However, the ultimate goal that unites
The Swiss franc remains highly valued. Its continued status the application of all monetary policy instruments – both
as a safe haven means that there is an ongoing risk of conventional and unconventional – is to determine how we
future revaluations. Our expansionary monetary policy is can create adequate monetary conditions in the current
therefore still important and the combination of interven- environment in order to safeguard price stability while at the
tions on the foreign exchange market and negative interest same time underpinning economic activity as effectively as
rates is still necessary. possible.
It is not the negative interest rate in Switzerland that is the The economy needs support in order to stay on course.
major challenge, but the global low interest rate environment.
Many central banks were already trending more
Can the SNB also envisage further reducing the key toward expansionary monetary policy even before the
interest rate from its current level of minus 0.75% if crisis. This trend has now been consolidated. Aren’t
the upward pressure on the Swiss franc were to you concerned about the risk of high inflation in the
increase significantly again? future?
There is still scope to further lower the key interest rate, That is not currently a risk for Switzerland, as inflationary
and we are prepared to act if the situation requires it. We pressure remains low. Our analysis indicates that the
are aware that the negative interest rate presents a major inflation rate for 2020 is minus 0.7%, i.e. in the negative
challenge. However, we believe that Switzerland would be range. The main reasons for this are the significantly
facing even greater challenges were it not for the negative weaker growth prospects and lower oil prices. However,
interest rate. Weighing up the pros and cons is therefore inflation expectations are firmly embedded with the popula-
always central to our actions. Overall, the negative interest tion and inflation is likely to return to the positive range in
rate has proved beneficial for Switzerland. It has provided the medium term, although our forecasts suggest it will
scope for improved monetary conditions in the economy, remain low – by international comparison also. For this
FX Survey 2021. Assessment of exchange rate developments. 27You can also read
